We need a systematic approach for sustainable development of the mining and metallurgy sector

Interview with Albert Rau, First Vice-Minister of Industry and New Technologies

Mr. Rau, what progress did Kazakhstan’s mining and metallurgy sector show in 2012?

At present, the mining and metallurgy sector is assessed as "the fastest growing sector of the domestic industry". There is a steady growth of all performance indicators in the sector. The output of steel products in 2012 amounted to 1,935 billion tenge (in current prices); of this amount, the output of product in the iron and steel industry amounted to 701 billion tenge, in the non-ferrous metal industry 1,224 billion tenge, and in metal casting industry 9.9 billion tenge. Fabricated metal products were 127 billion tenge.

However, those difficulties we are observing today in external markets have an effect on the exports of our products. For example, last year the production capacity reduced at ferrous metallurgy enterprises, such as Arcelor Mittal Temirtau, Casting, ALZ and KSP Steel. One of the reasons that caused this was the tense situation on the sale of steel products to Iran, since international sanctions against this country are still in effect.

In this regard, the Ministry together with the enterprises worked out additional measures aimed to sell the metal in the domestic market and to remove barriers for promotion of products of the mining and metallurgy sector. As a solution of this, a proposal was made to provide with rolled metal products the companies that are involved in implementation of the state housing program "Affordable Housing 2020."

The issues of expansion of a sales network for products of the mining and metallurgy sector in regions of the country through the creation and development of representative offices, shopping malls, warehouses, etc do not stay without attention. Also, the ministry is considering alternative international routes for selling of products, including the markets of the Pacific region.

In addition to entering external markets, we study and explore possibilities for organization on the territory of ArcelorMitall Temirtau JSC of a sub-zone, focused on the demand for rolled metal products and metal works by small and medium businesses. Using cast iron and steel manufactured by the plant in their production, they can form an additional market.

The ministry, jointly with representatives of a number of government agencies (Ministry of Finance, Ministry of Economic Development, Ministry of Environmental Protection, Ministry of Justice, National Security Committee, the National Welfare Fund Samruk-Kazyna, and NAC Kazatomprom), established a special working group to address issues related to the development of Stepnogorsk Mining-Chemical Works (SMCW). Last year, its members carried out system monitoring and organized a field meeting in Stepnogorsk, where with the direct participation of specialists from the plant the parties worked out measures to stabilize the business cycle of SMCW.

During 2012, the ministry resolved a number of issues to provide SMEs with the primary raw material. This year Aluminum of Kazakhstan JSC will supply to Kapchagai Porcelain LLP 10 tonnes of alumina for the production by this enterprise of national porcelain. ArcelorMittal Temirtau will supply hot-rolled coils for the needs of Petropavlovsk Pipe Plant; this will make it possible to preserve jobs and increase export-oriented production. Kazzinc will supply 18 tonnes of lead for production of battery cells at LLP Kainar-AKB’s plant.

Active work is in progress to develop the titanium subsector. The resolution of the Customs Union’s Committee abolished the customs duty on imports for dehydrated carnallite, which is the main type of raw material for production of titanium sponge, primary magnesium ingots and titanium ingots and alloys. Today, Ust-Kamenogorsk Titanium-Magnesium Works produces over 14% of the world production of titanium. With this, domestic titanium makes over 17% of the total consumption by the international aerospace industry.

It should be noted that according to the last year’s amendments to the Tax Code, the proceeds from selling of scrap metal and waste of ferrous and non-ferrous metals were exempt from VAT, starting from January 1, 2013. In addition, the issue is now under consideration by the ministry to abolish export duties on aluminum products, as well as the ministry is studying the possibility of creating a sub-zone in the Pavlodar region for cluster development of the aluminum industry focused around the Kazakhstan Aluminium Smelter.

To replenish the gold reserves of the country, a zero rate of VAT was introduced on the sale of gold to the National Bank of Kazakhstan by the companies Kazzinc and Kazakhmys Corporation, and 28.3 tonnes of refined gold have alreadybeen bought from them. To solve the problem of increasing the volume of processing of gold-bearing raw materials in Kazakhstan, the construction of a gold refinery started; the commissioning of the plant is scheduled for the fourth quarter of this year.

To increase the load of domestic steel mills a number of measures were adopted to ensure a stable supply of copper, zinc and lead concentrates. In addition, we organized monitoring of activities of backbone enterprises, comprising the mining and metallurgy sector.

I should say that this area is given attention at the highest level. A series of government meetings were held with Prime Minister S.N. Akhmetov as Chairman, in the course of which the meeting participants heard reports of large corporations, such as ArselorMittal Temirtau, ENRC, Kazakhmys Corporation, Kazzinc and others. The companies, in their turn, raised a number of issues relating to finance, taxation, customs duties, transport and logistics, railway tariffs, ecology, labor relations, mineral production and power energy. Following the meetings, under resolution of the Prime Minister a special working group was set up, which competence involves the working out of proposals for long-term planning of development of backbone enterprises of the mining and metallurgy sector.

What is the progress of things with implementation of tasks set before the mining and metallurgy sector as part of the AIID Program?

Work continues to implement investment projects and raise investment into the sector. The Industrialization Map involves 78 mining and metallurgy projects worth 1.83 trillion tenge with the creation of 33.1 thousand jobs for the period of construction and 29.3 thousand jobs for the period of operation. Over the last three years, 42 projects to the total amount of 377.2 billion tenge were implemented. 36 projects more, worth of 1.46 trillion tenge, are at the stage of implementation.

If to take into account that the number of businesses who want to use government support, is growing every year, it can be assumed that from 2015 new projects will appear that will imply the modernization of equipment, deep conversion of raw materials and manufacturing of finished metal products with high added value.

Analysis of the projects of the mining and metallurgy sector for products of various added value shows that 27 of them are implemented in the mining industry (8 in metal ores extraction, 19 in the primary processing and enrichment) and 51 projects in the metallurgy sector (of them, 10 projects provide for production of primary metal, 16 of alloys, and 25 for output of rolled metal and metal products).

Assessing the role of new projects in development of the mining and metallurgy sector, it should be noted that due to them, the gross value added (GVA) in the sector increased by 64.9 billion tenge in 2010, and by 186.2 billion tenge in 2011. Their contribution to the manufacturing industry was 7.5%, to GVA of the sector 2.6%, and to the GDP of the country 0.9%.

During the implementation of new projects 106 types of products, which were never previously produced in Kazakhstan, were launched into production. Among them are marine steel structures, turbine racks, composite metal pipes, cables, plumbing hardware, different types of reinforced steel, etc. All this evidences the effectiveness of measures taken under the Industrialization Map.

It should be noted that with the purpose to intensify efforts and strengthen control over the quality of new projects included in the Industrialization Map Program, the regulations for project selection were approved last year. According to them, the process of including projects into the Industrialization Map has several stages: projects of the regional level undergo two stages of consideration, while projects of the national level four stages. This makes it possible to assess the degree of readiness of the project, the quality of project documentation provided, and the feasibility of the project. Accordingly, the regulations help include into the Industrialization Map only effective projects with a higher added value and the focus on development of small and medium businesses.

Regarding the performance indicators of the ministry, the action plan for implementation of the Sectoral Program for Development of the Mining and Metallurgy Sector for 2010–2014 provides for 55 events on nine major directions. Among them are the sectoral and project measures of state support, issues aimed at improving the legislation and removing administrative barriers, the measures to promote the development of innovation and technology upgrading, the creation of conditions for investment, and the provision of resources. Over a three year period we conducted 9 events, 46 more events have a long-term effect and will be implemented before 2015.

In general, the measures taken have a positive effect on the progress of implementation of both the said program and the state AIID Program. In the framework of the Business Road Map-2020 Program, 63 projects in the area of metallurgy and metal works, worth of 43.4 billion tenge, were approved for subsidizing.

What kind of assistance does the state provides to enterprises of the mining and metallurgy sector to overcome the adverse impact of the global slowdown?

For development and promotion of metal products in external markets, the state provides adequate financial support. For example, from 2010 to 2012, the costs of five steel companies, associated with the promotion of their products in external markets, were compensated by the government to the total amount of more than 23 million tenge. 18 trade missions with participation of seven Kazakhstani companies were conducted in Tajikistan, Kyrgyzstan, Georgia, Azerbaijan, Russia, Romania, China, Turkmenistan, India, Iran, Belarus and Poland. Also, we organized six meetings between "Buyers and Sellers" in Almaty, Aktobe and Shymkent, with the participation of four steel companies.

Products of five leading domestic steel companies were presented on the national stands at major international exhibitions, such as the "Oil and Gas-2012" (June 25–27, Moscow) and Metal-Expo 2012 (November 13–6, Moscow).

Last year, in aggregate we organized more than 30 international advertising and presentationevents, and the total amount of contracts signed by enterprises of the metallurgy sector was $ 93 million.

As part of the consulting support, training sessions are conducted on issues of running foreign economic activity, which were attended by over 40 specialists of the mining and metallurgy sector. Besides, two brief analysis were conducted to review the most attractive markets for export of products by companies such as Kazakhstan Pipe Plant (Russia, Turkmenistan, Uzbekistan) and KazTherm (Russia, Belarus, Ukraine).

And of course, we are actively working to promote products of the mining and metallurgy sector to foreign markets as part of the Exporter 2020 Program.

As you know, the Government has prepared a batch of amendments to the mineral production laws. Which of the proposed amendments you would call the most important in terms of increasing the investment attractiveness of the mining industry?

At present, the granting of mining rights in Kazakhstan is carried out only in two ways: holding of open bids or carrying on direct negotiations with the national company or the entity representing the state-run AIID Program.

However, the current situation points to the need to take cardinal measures to increase the investment attractiveness of the sector. In this regard, the bill would provide for the possibility of new forms of raising investment, based on international experience (including guarantees for the transition from the exploration phase to production), as well as measures to improve contracting procedures.

It is planned to reduce the number of mandatory examinations on contracts. In particular, it is proposed to exempt mineral producers from the obligation to apply for approval of changes in the production volume ranging 20% of the design maximum volume that will allow to effectively using the potential of the fields. In addition, the bill will conceptually change the procedure for access to geological information.

In general, the adoption of the amendments will ensure transparency of decision making, eliminating the possibility for undue interference by the regulatory agencies and creating by them of administrative barriers for business.

Minister of Industry and New Technologies Asset Issekeshev, speaking at the forum MINEX Central Asia, said that in May they will start accepting applications for open bids on solid minerals from mineral producers. What is the progress of things on this issue?

Currently, our ministry is working on a list of sites to put them up for open bids. During preparation of the list, investors are welcome to give their recommendations on the list, to propose those sites for inclusion in it which they find attractive for investment. Relevant proposals can be made up in a free form and will be considered in the preparation of the list.

In general, speaking about the prospects for the development of geology, it should be noted that our attention will be focused on five main aspects. Among them are the further improvement of the investment climate, the human resources capital, the development of geological infrastructure, the implementation of international standards in reports on reserves and resources, as well as the increase in budget funding, public and quasi-public investment in the exploration and mining sector.

The state represented by national companies will act with niche strategies for exploration. The main focus will again be made on attracting of private partners. We are interested in investment and technologies, and therefore, intend to make all efforts to ensure a lot of new projects in geology and the mining industry.

In recent years, the government and business stepped up joint efforts to ensure adequate training of personnel for the mining and metallurgy sector. What is the current state of affairs in this field?

For the overall coordination of work in this direction a sectoral council to develop technical and vocational education and training for the mining and metallurgy sector was established. The government placed an order for 1.3 thousand people to get higher education in the mining and metallurgy sector for the 2012–2013 curriculum year. Of this amount, 580 graduates should specialize in Metallurgy, 160 in Materials and Technology of New Materials, 230 in Geology and Exploration of Mineral Deposits, and 360 in Mining.

Along with that, a list of priority specialists for the mining and metallurgy sector is made in order to develop top priority professional standards. Last year 2.9 thousand people graduated from institutions of technical and vocational education. Of them, 1.2 thousand people (40.4%) were graduates who studied under the government order. At the moment, 1.8 thousand graduates (60.3%) are already hired.

In the framework of activities aimed to set common principles for remuneration of labor and to diminish disparities in salaries of employees of the mining industry, an extended meeting of the sectoral committee on social partnership was held with participation of representatives from departments of labor and wages of some enterprises. Following the meeting, it was decided to examine the recommendations from the Kazakhstan Institute for Research on Labor and Employment for their subsequent application at enterprises. In addition, the heads of the Republican Association and the sectoral trade union jointly with Kazakhstan Institute for Industry Development were given an assignment to examine the ratio between the volume of production and the wage fund, given examples of the companies engaged in the mining sector in the CIS and abroad. This will help work out recommendations on application of the best practices in the mining sector in Kazakhstan.

A startup of the internship program in Germany, which was launched at the end of last year, can be called a landmark event. The emphasis of the program is to develop cooperation with German companies so that Kazakhstani specialists could deepen their knowledge and skills of in the field of management.

15 managers of domestic mining companies took part in the program. The internship involved workshops and visiting German companies individually or in a group. We hope that the number of young professionals, who raise their skills, including those studying under the Bolashak Program, will continue to grow, adding to significant strengthening of the human resources potential of the industry.